FW: RHB FIC Rates & FX Market Update - 29/11/17

 

 

29 November 2017

 

 

Rates & FX Market Update

 

 

Tax Reform Hopes Eclipsed North Korea's Missile Test

 

Highlights

 

¨   Global Markets: The USD advanced (+0.32%) on (i) progress on the tax reforms as the Senate Budget Committee sent the bill to a vote in full chamber (Thursday) and (ii) Nov. Consumer Confidence beat expectations (129.5 vs. 124.0) climbing to a 17-year high. Else, Powell's Senate confirmation hearing started and no surprise arose from his comments leaving the US curve unchanged, also insensitive to a new North Korean missile test. With a soft inflation outlook, the Fed is likely to keep a discretionary data dependent approach in 2018 and we expected the curve to flatten further. Next, inflation data due tomorrow could give another temporary boost to the USD should the release print above consensus (1.4%). However, near term risks remains as even if the Senate passes the bill a reconciliation would be needed between chambers while the possibility of a partial government shutdown is resurfacing (funding bill expires on Dec. 8^th) after Democrats leaders skipped a meeting with the US President, earlier tweeting he did not "see a deal" with them; remain neutral USD and UST. Over in Australia, 2y ACGB yields fell below comparable USTs overnight as traders continue to price out an early rate hike; OIS futures indicate a likely hike only in end-2018, compared to early-mid 2018 c.2 months back. Falling yield differentials against G10 peers continue to weigh on the AUD's performance, with the AUDUSD pair now back around the 0.76 handle. We continue to maintain a neutral stance towards the currency over the medium term, with the pair unlikely to deviate significantly in either direction, on average.

¨   AxJ Markets: Over in Malaysia, rate hike expectations continue to build-up since the November MPC meeting, with the USDMYR now testing the 4.10 psychological handle after falling c.3% MTD. We continue to remain mildly constructive on the currency over 1H18, although lingering EM and China fears should continue to limit any significant gains in the MYR.

¨   The GBPUSD rebounded on a reported news affirming that UK found an agreement with the EU on the Brexit divorce. The pair closed +0.26% higher, up from a retracement at 1.3220 although the rally ended at previous tops as the news was not confirmed by UK officials. Market is likely to focus on next week's meeting between PM May and EU Commission Juncker. Negotiations ahead remain perilous with many agreements to be reached before the tight 2019 deadline which could exert downside pressure on the currency. However as BoE is willing to defend its purchasing power, we remain neutral GBP.

 

This message is intended only for the use of the person(s) to whom it is addressed and may contain information that is privileged or otherwise protected from disclosure. If you are not the intended recipient you are hereby notified that any use, review, disclosure or copying of this message and the information it contains is prohibited. If you receive the message in error, please notify the sender by reply e-mail and discard all its contents.   Thank You.